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Court unconvinced by never ending restraint of trade claim

A High Court judge has prevented a company from forever halting one of its former shareholders from trading sunglasses in New Zealand. 

Bencho - a $5 million company which distributes low price sunglasses through service stations and convenience stores – had obtained an indefinite restraint of trade on former shareholder Chris Bissiotis. 

Mr Bissiotis, now based in Australia, had developed the Aerial brand of sunglasses in 1994 through his company Pacific Optics Pty. He was just 21 years old.

According to a court judgment, he then ran a successful business in New Zealand called Pacific Optics Limited, distributing sunglasses which were manufactured by his business partner Po-Ling Liu.

Mr Liu owned factories in China where the glasses were made.

In a judgment released this week Justice Murray Gilbert said Mr Bissoitis was credited for much of the New Zealand-based Pacific Optics’ success.

“From the time of Mr Bissoitis became involved in the company in September 2001, to the time of his exit in August 2008, the annual turnover of the business increased from approximately $3 million to $6 million.

However relationships turned sour and by 2008 Mr Bissoitis was having trouble working with another shareholder, Wellson Susanto, according to the court judgment.

“Although he was then only 35 years of age, Mr Bissiotis was suffering form serious heart problems that required surgery.

“He was reluctant to leave the company because he had been instrumental in its development but he need to free himself of the conflict with Mr Susanto,” Justice Gilbert said.

Mr Bissiotis agreed to sell his stake in the business for $3 million under a deal whereby he transferred all of the intellectual property rights to Aerial, and agreed not to complete with his former company anywhere in New Zealand.

Justice Gilbert said Mr Bissiotis and his Australian company Pacific Optics Pty were considered a unique threat to New Zealand based Pacific Optics Ltd.

Nearly five years later, Mr Bissiotis’ company purchased a new sunglass company and wanted to begin distribution in New Zealand.

Lawyers for Bencho told Mr Bissiotis he could not and the parties tried mediation to settle the dispute.

The matter eventually went to the High Court at Auckland where Bencho’s lawyers said the restraint should be indefinite, and failing that it should be 20 years long.

Justice Gilbert said at the time that the restraint of trade was formed, Mr Bissiotis’ company had been operating for more than 10 years, which indicated a restraint was needed for the benefit of the goodwill it was acquiring.

However, the judge said the market was constantly changing and developing, and most of its key customers are different to those it had in 2008.

The judge ruled that a six-year restraint, dated from 2008 was appropriate.

Business lawyer Steve Dukeson says the original restraint was never going to fly as drafted, and that a restraint on trade forever is unlikely to ever be justified.

“In this case, one of the reasons for reducing the ambit of the restraint was that the case didn’t involve a third party acquiring a new business, and there was a low barrier to competition in this market.”

He told NBR ONLINE the courts generally frown on restraints on competition per se.

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